The problem with this critique is that free markets don't exist in the banking system. The reason the Commonwealth Bank makes these massive profits is that government provides them with powers that they would not have in a free market.

The first and most obvious is the access they have to the most horrific government agency of them all, the Reserve Bank of Australia. The Reserve Bank creates its own deposits out of thin air. It is able to do this because the government has allowed it to. It then lends out these deposits at an interest rate determined by a group of disturbingly secretive government bureaucrats.

Economists, other than Murray Rothbard's disciples, never associate the concept of theft with monetary inflation. They speak of theft in terms of reduced efficiency and increased transactions costs, not morality.

When it comes to avoiding morality, they are worse than lawyers. A lawyer might appeal to morality if he had a really weak case. This appeal might persuade a jury. An economist would rather lose the argument than appeal to morality. He regards the shame of invoking morality as personally more inefficient than winning the argument by an appeal to morality. Once you appeal to morality, academic economic theory collapses. Economics was the first science to be self-consciously designed to avoid moral questions.

Cartels: Economists and Central Bankers

A cartel is an organization made up of senior managers or their representatives in an industry. Established members of an industry fear competition from newcomers. Newcomers will cut prices and thereby reduce existing companiesâ€™ profit margins. So, cartels seek government protection against newcomers. In this quest, they give lots of money to politiciansâ€™ campaigns. Then, having bought access, they seek to persuade politicians to establish legal barriers to entry in their industry. These barriers are imposed in the name of the public interest. Their justification is that they raise standards of production. The sales pitch is this: "Higher standards require higher prices."

Neocons Love the Fed

David Frum is on the warpath. In a National Review Onlineblog post, then an NPR commentary, and most recently in a National Postarticle, Frum has mercilessly ridiculed the gold standard. But as with most modern critiques of the "bad old days" of the laissez-faire 19th century, Frum's analysis is fraught with theoretical and historical problems.

Frum's main objection is that the gold standard is allegedly rigid, preventing the economy from smoothly adjusting to various shocks:

Since permanently abandoning gold convertibility in 1933, the US economy has experienced far less economic volatility. Recessions are fewer and shallower (if sometimes longer).

Of course, that's not the only way to balance accounts. There is another, the way Americans experienced in 1837, 1857, 1893, and 1930-33. In those years, the value of the dollar was fixed to gold. (One dollar = 1/20 of an ounce.) If something bad happened in the world or US economy, the dollar could not adjust. A recession was like a car accident without bumpers or crumple zones â€” the full pain was conveyed uncushioned to the riders in the cabin. Domestic asset values collapsed. Unemployment jumped overnight to 15% or 20%. Homes were lost, businesses disappeared.

There's a lot packed into this quote, making it hard to choose where to begin. Let's start with the claims about unemployment. First, Frum makes it appear as if 15% or even 20% unemployment was something typical under the gold standard. But no, the depression of 1893 had unemployment in the low-teens, and this downturn is generally ranked as the worst in US history except for the Great one in the 1930s.

The Function of Saving

Under the above title Mr. Bostedo has criticised, in the January number of the ANNALS,(1) some views which I expressed in my work, "The Positive Theory of Capital," in regard to the influence of saving on the formation of capital. While I advanced and illustrated by means of vari- ous examples the opinion, that an increase in the capital of a community can only take place in consequence of a balance of saving over spending on the part of its members, Mr. Bostedo arrives at an exactly opposite conclusion, namely, that "saving, as the term is commonly understood, has no influence whatever on the formation of capital."

My surest vindication would consist, I have no doubt, in asking the reader to study point by point, the detailed exposition of this subject in my "Positive Theory."[2] The solution of a problem of this nature can only be presented by creating in the reader's imagination, in place of a superficial view of the surface money phenomena which present themselves to every-day observation, a complete and at the same time plastic picture of the actual relations of modem industrial society. Such a complete picture I have tried to sketch in my Positive Theory," and I cannot, for obvious reasons, repeat the undertaking in these pages. I must rather content myself with commenting upon the particular points and difficalties which Mr. Bostedo raises in his criticism.